Elev8’s maiden fund signals venture capital appetite in India

“We’ve already made about five investments out of Fund I, and the intent is to make about 12-13 investments from this fund,” Navin Honagudi, founder and managing partner at Elev8 Venture Partners, told Mint in an interview.

The firm joins a wave of VC activity in India this year. Accel launched a $650 million Fund III, Bessemer Venture Partners raised $350 million for its second India-focused fund, Elevation Capital announced a $400 million vehicle targeting IPO-bound startups, and A91 Partners announced the first close of their $665 million third fund in April.

Sector-specific players like Yali Capital ($104 million), Speciale Invest ($70 million), and Unicorn India Ventures ($143 million target) have also entered the fray.

Elev8’s portfolio includes fintech platform Smallcase, identity verification firm IDfy, astrology soon-to-be unicorn AstroTalk, buy now pay later player Snapmint, and logistics startup Porter. Typical cheque sizes range from $10-15 million, with co-investment flexibility allowing for $25-30 million in select cases. The firm targets 7-14% ownership per deal.

Target firms

“The sweet spot for us is companies which are valued between $100 million and $300 million. Coming in at that stage and assuming minimum dilution, there’s still potential to make a 5-7X return on the investment as these companies go towards building unicorns,” said Honagudi. In the startup ecosystem, unicorns refer to companies which are valued at or over $1 billion.

Elev8 is focusing on being primaries-first, with between 70% and 75% of Fund I allocated that way. Primary investments are when VC or private equity acquires its own stake in a company, as opposed to secondaries, which are commitments that are bought out by new investors to let earlier investors exit with their money.

With the five investments listed above, Elev8 has so far deployed 35% of its fund and expects to deploy the balance within the next 18 to 24 months. Honagudi said that they’re planning to hit an internal rate of return of 23-25% with the fund over the seven-year lifecycle, which ends in August 2032. Elev8 plans to start returning investments in 2028. “That’s when we’ll start liquidating some of our companies and return money to our investors.”

The firm secured a commitment from one of Korea’s largest commercial banks, Koomin Global, to anchor the fund. The fund’s capital base is split 50:50 between international and local investors, with institutional investors accounting for 45% of the mix, while 55% are family offices and high-net-worth individuals (HNIs).

Thesis for Fund I

“We invest in broadly three areas: consumer internet, business-to-business (B2B) enterprise software and fintech. We will continue to focus on these three spaces even for the remaining investments,” said Honagudi.

Artificial intelligence, however, has been missing from the equation. But that’s only because the firm believes it’s too early for these companies to be looking for growth capital. “AI has been a theme the last two years, but it will take some time for these companies to scale to $20 million in revenue before we look at them for an investment,” Honagudi said.The firm’s thesis for the fund is fairly broad within the consumer space, ranging from marketplaces and e-commerce to even direct-to-consumer (D2C) brands.

While Elev8 is actively scouting D2C investments, its focus is on companies making a play for premiumisation, such as luggage brand Mokobara or a mass premium brand like Theobroma, which saw private equity firm ChrysCapital pick up an 85% stake in a deal reportedly valued at ₹2,400 crore.

However, Honagudi said that they’re going to be opportunistic with food and beverage, given that there are only two distribution channels for the segment, both of which are already crowded. “Something that’s heavily offline, like a Blue Tokai, is heavily venture funded; that’s not a focus for us in terms of completely offline. Online is very tricky given that Zomato and Swiggy exist. It becomes relatively difficult for a new cloud kitchen company to come up and build a brand.”

With fintech, the goal is to find companies where technology is a large part of the business. Elev8’s investments in smallcase and Snapmint, for example, allow users to make bite-sized investments or make a purchase and follow up with bite-sized payments in the form of equated monthly instalments (EMIs).

With fintech, the company is looking for companies whose costs are focused more on product development as opposed to sales. “If it’s a wealthtech company, we want to focus on companies where 70-80% of their salary costs go towards their product and development teams, not their sales teams,” said Honagudi.

Portfolio picks

Smallcase is currently valued at $295 million, according to startup data intelligence platform Tracxn. The company last raised $50 million in a Series D led by Elev8 in March this year. Snapmint, on the other hand, is looking to raise $40 million at a valuation of $150-160 million, Entrackr reported.

“We’re looking for companies that can plug into the infrastructure of legacy insurance companies while building relevant bite-sized insurance products for consumers,” Honagudi said. “The second area of interest is reinsurers, but they’re completely old school. Intermediaries like Marsh and Willis Towers Watson exist, but if there are companies that are disrupting them by being technology-enabled companies, that will be interesting for us.”

When the fund is nearing the end of its deployment cycle, Elev8 will begin exploring other areas, such as new-age manufacturing, healthtech, and infrastructure.

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